As set forth in a July 29th news release, State Treasurer John Kennedy is pursuing 36 non-governmental organizations who have failed to comply with Louisiana state law requiring them as recipients of state appropriations to provide progress reports and other documentation to the Treasury to maintain their funding. If an organization fails to comply with these reporting provisions, it is required by law to return in full the state appropriation to the Treasury. Kennedy stated that "[w]hile most NGOs have worked in good faith with our office and have been in compliance, these 36 organizations have become the most flagrant violators of these important requirements." If these organizations do not fulfill their required reporting obligations by August 31st, the organizations will owe approximately $4.452 million dollars to the Treasury, who will turn over collection to the State's Office of Debt Recovery.

As reported by the Daily Tax Report and others, email exchanges between the Federal Election Commission and Lois Lerner, then Director of IRS Exempt Organizations Division, reveal that the IRS may have unlawfully shared confidential tax information with the FEC, according to a July 30th letter from two House Ways and Means Committee leaders. According to the letter, nine minutes after receiving the email, Lerner requested that IRS attorneys "accommodate the FEC request." The letter requests Acting IRS Commissioner Daniel Werfel to produce by August 14 all communications between the IRS and the FEC between 2008 and 2012, including specific communications to and from Lerner with respect to certain organizations: American Future Fund, American Issues Project, and Citizens for the Republic, or Avenger, Inc.

As reported by The Chronicle of Philanthropy, effective yesterday, August 1, 2013, Delaware joined 19 other states with laws on the books permitting the formation of public benefit corporations. Delaware Governor Jack Markell signed Senate Bill 47 into law on July 17, 2013. The new law provides:

A public benefit corporation is a for-profit entity which is managed not only for the pecuniary interests of its stockholders but also for the benefit of other persons, entities, communities or interests. Delaware General Corporation Law Sections 362(a) and 365(a) create and impose on directors of public benefit corporations a tri-partite balancing requirement. Public benefit corporations must be managed in a manner that balances (i) the stockholders’ pecuniary interests, (ii) the interests of those materially affected by the corporation’s conduct, and (iii) a public benefit or public benefits identified in the corporation’s certificate of incorporation.

This paper explores whether ownership matters in a fundamental sense by comparing the performance of stockholder-owned firms with the much less analyzed nonprofit firms. No stakeholder has residual cash flow rights in nonprofit firms, and the control rights are held by customers, employees, and community citizens. Accounting for differences in size and risk and comparing only firms in the same industry, we find that stockholder-owned firms do not outperform nonprofit firms. This result is consistent with the notion that the monitoring function of stockholders may be successfully replaced by other mechanisms. We find evidence that product market competition may play this role as a substitute monitoring mechanism.

Through a case study approach, this article explores how non-profits can effectively participate in joint ventures with larger, for-profit institutions. In addition to offering a new product or service, these partnerships should build the brands of both organizations. The similarity between for-profit business joint ventures and non-profit joint ventures is examined. The author compares two non-profit joint ventures – one successful and one unsuccessful – to demonstrate the importance of several aspects of joint ventures. Just as in business ventures, non-profits must carefully select their partners, have a clear understanding of roles and responsibilities, engage in open communication, and have a written charter of each partner's roles and responsibilities. Most importantly, non-profits must ensure that they are treated as equal partners and that their brand is reinforced in any communication to their stakeholders.

It appears that the difference between the Internal Revenue Code defintion of "charitable" and that applied by state and local taxing authorities continues to affect nonprofit organizations, this time outside of the health care arena. As reported by The Chronicle of Philanthropy, two organizations in Kittery Maine are disputing the town's revocation of their property tax exemptions on the basis that their art and dance activities do not comport with Maine's "charitable and benevolent" standard.

As we have noted in other postings, Paul Caron’s TaxProf Blog is daily covering the controversy surrounding the IRS’s processing of applications for tax exemption filed by purported section 501(c)(4) organizations. Here are a few developments from recent headlines:

House GOP seeks new IRS probe (Washington Post): "whether the embattled Internal Revenue Service targeted conservative groups, this time after the organizations were already approved for tax-exempt status."

IRS scandal inspires week of GOP bills (Pittsburgh's Tribune-Review): House Republicans call it their "Stop Government Abuse Week" with bills that address government services and response times, a Taxpayer bill of Rights, and repeal of the Affordable Care Act.

House panel accuses IRS' Werfel of stonewalling probe (Fox News): House Oversight and Government Affairs Committee accuses Acting IRS Commissioner for the "systematic manner" in which the IRS has "attempted to delay, frustrate, impede and obstruct" the Committee's investigation.

In a candid New York Times Op-Ed entitled "The Charitable-Industrial Complex," Peter Buffett (musician and son of Warren Buffett) discusses the concept of "conscience laundering" - "feeling better about accumulating more [wealth] than any one person could possibly need to live on by sprinkling a little around as an act of charity." However, Buffett opines that the system that "creates vast amounts of wealth for the few" and leads to charitable acts and giving by the wealthy nevertheless "just keeps the existing structure of inequality in place." It is an interesting read.

The Patient Protection and Affordable Care Act (PPACA), significant health care reform enacted in 2010, imposes an “assessable payment” on certain employers that fail to offer affordable health insurance to their employees. The ambiguity of the exaction’s title poses a planning problem for some nonprofits receiving federal grant funds with restrictions imposed by the Office of Management and Budget’s Circular A-122. Circular A-122 permits these restricted grant funds to be used for “taxes,” but not for “penalties.” On June 28, 2012, the U.S. Supreme Court, held in National Federation of Independent Business v. Sebelius that the PPACA’s individual mandate’s “shared responsibility payment” could, for constitutional purposes, be interpreted as a tax. This Note argues that the PPACA’s assessable payment should be interpreted as a tax by applying the Supreme Court’s recent tax versus penalty analysis and analyzing the exaction’s characteristics and effect on employer behavior. This interpretation will provide organizations with predictability in planning and ensure that Congress does not escape political accountability for imposing taxes by using the ambiguous term “assessable payment.”

In Carpenter v. Commissioner, T.C. Memo 2013-172 (Carpenter II), the Tax Court denied the taxpayer’s motion for reconsideration and supplemented its opinion in Carpenter v. Commissioner, T.C. Memo. 2012-1 (Carpenter I). The court clarified that Treasury Regulation § 1.170A-14(g)(6)(i)—the "extinguishment" regulation—sets forth the conditions under which federally–deductible conservation easements can be permissibly extinguished, namely, in a judicial proceeding upon a finding that continued use of the property for conservation purposes has become impossible or impractical. The court specifically rejected the argument that the extinguishment regulation is merely a safe harbor, explaining: "To make our position clear, extinguishment by judicial proceedings is mandatory. Therefore, we reject petitioners’ argument that [the extinguishment regulation] contemplates any alternative to judicial extinguishment."

The Tax Court also rejected the taxpayers’ argument that the First Circuit’s opinion in Kaufman v. Commissioner, 687 F.3d 21 (1st Cir. 2012) (Kaufman III), was an intervening change in law that required the Tax Court to reconsider its holding in Carpenter I that conservation easements extinguishable by mutual agreement of the parties do not satisfy the extinguishment regulation. The Tax Court explained that Carpenter is appealable to the Tenth Circuit rather than the First Circuit and Kaufman III addressed legal issues different from the one present in Carpenter in any event. In particular, Kaufman III addressed the proper interpretation of Treasury Regulation § 1.170A-14(g)(1) (the "general enforceability in perpetuity" regulation) and Treasury Regulation § 1.170A-14(g)(6)(ii) (the "proceeds" regulation), neither of which were at issue in Carpenter.

The Tax Court’s holdings in Carpenter I and II are consistent with IRS General Information Letter dated September 18, 2012, in which the agency advised that, while state law may provide a means for extinguishing a conservation easement for state law purposes, the requirements of IRC § 170(h) and the extinguishment and proceeds regulations must nevertheless be satisfied for a contribution to be deductible for federal income tax purposes.

The Tax Court’s holdings in Carpenter I and II are also consistent with public policy. To ensure consistent protection of the federal investment in conservation easements and the conservation values they are intended to “protect in perpetuity” for the benefit of the public, the high threshold for extinguishment set forth in Treasury Regulation § 1.170A-14(g)(6)(i) must apply uniformly to all federally-deductible easements, regardless of the parties to the easements or the states in which the easements are created. Uniform application of the extinguishment requirements also ensures that taxpayers will be treated equitably—that easement donors benefiting from sizable deductions will not be able to more easily escape the perpetual restrictions placed on their property in some states than in others. Requiring that the decision to extinguish a federally-deductible perpetual conservation easement be made by a court as opposed to the parties to the easement ensures that the decision will not be made solely by the parties who stand to benefit, financially or otherwise, from the extinguishment. And requiring that the extinguishment decision be made by a court as opposed to a state or local official, agency, committee, or administrative board helps to ensure that the decision to terminate federally-deductible easements will not be influenced by the short-term and often short-sighted political, economic, and development pressures to which state and local actors can be subject. Finally, the already substantial complexities associated with valuing federally-deductible conservation easements would be greatly exacerbated if the easements were subject to extinguishment pursuant to different processes and procedures, which, even if tied to state and local laws or ordinances, would vary over time as local politics and priorities change.

The easiest and most prudent way to comply with the extinguishment requirement appears to be to include a provision in the conservation easement stating that the easement can be extinguished in whole or in part only (a) in a judicial proceeding, (b) upon a finding by the court that a subsequent unexpected change in the conditions surrounding the property has made impossible or impractical the continued use of the property for conservation purposes, and (c) with a payment of proceeds to the holder as provided in Treasury Regulation § 1.170A-14(g)(6)(ii) to be used by the holder in a manner consistent with the conservation purposes of the original contribution (i.e., the easement should carefully track the provisions of both Treasury Regulation § 1.170A-14(g)(6)(i) and -14(g)(6)(ii)). The easement should also comply with the related "restriction on transfer" regulation, Treasury Regulation § 1.170A-14(c)(2), which mandates that the instrument of conveyance limit the holder's ability to transfer the easement, whether or not for consideration, except in carefully prescribed circumstances. As an added precaution and to avoid any possible confusion, the easement might further provide that its provisions apply notwithstanding and in addition to any conditions that may or may not be imposed on the transfer or release or other extinguishment of a conservation easement under state law.